Interest Only Mortgage Loans

Interest only Mortgage loan is a type of loan which is used to pay for the interest only of the mortgage. So, instead of paying for the whole amount of the mortgage which is the principal and the interest, only the interest is being paid. This usually will take two to three years to pay and once done, then that is the only time the borrower starts to pay for the principal amount.

Here are some things to consider when getting an interest only mortgage loan:

1. Only the interest is paid up and the principal amount of the mortgage no being reduced. With an interest only mortgage loan, the principal amount is not being paid. And after a couple of years, you will only be paying up for the principal amount.

2. Interest only mortgage loan allows you to prepare for the payment of the principal as it gives you ample time to look for alternative resources. This is highly suggested to those who will only be keeping the property for a short period of time and will sell it later on. Selling the property after the interest has been paid up saves so much amount of money to the buyer. With an increasing market price, they are able to sell the property at a much higher price and without incurring so much loss in the payment of the mortgage.

3. Interest only mortgage loan may have a downside if the value of the property goes down. This means one cannot sell the property at a much higher price and with the principal not reduced this will mean higher monthly amortization on the part of the owner. Not being able to meet the amortization may eventually lead to foreclosure. This is the reason why people who avail of interest only mortgage loan have to save for the few years they have only been paying for the interest which is minimal.

4. Selling the property is the main reason why people avail of an interest only mortgage loan. However, it becomes a concern when the market value of the property goes down instead of going up. The owner will be forced to pay for the mortgage until such time that he is able to sell it. The next messy thing he could be is not having the budget for the principal amortization. Remember that the interest only mortgage loan simply covered the interest and not any of the principal.

So when the owner fails to settle the monthly amortization which will now be higher, then he will eventually face foreclosure. Henceforth, one must be very careful not to fall into this situation. As suggested above, you should always save. When you availed of the interest only mortgage loan, you are being given the opportunity to save the most you can to pay for the mortgage. It is also a time to look for other sources such as investing in a business because you are not yet tied up to a bigger loan.

An interest only mortgage loan should be used to your advantage. While you are only paying for the interest, make sure that you are using this valuable time and money wisely. Invest the money which you are to pay for the mortgage for those two to three years. Make sure it grows so that when the interest has been paid then you have the amount needed to pay the mortgage of the property. You may even want to sell the property just before you start paying mortgage. In this way, you should have saved for the last two or three years.